Prices Increasing Soon
People buy term plan for is its long-lasting promise of protecting loved ones and their financial future. However, policyholders sometimes surrender their term insurance policies before the term ends for multiple reasons. Surrendering term insurance also means ending the plan before it matures. If you surrender a plan during the policy term, you’ll receive a surrender value based on your earnings and savings. The surrender charge deducted from this amount varies depending on the plan.
#All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply
By clicking on "View plans" you agree to our Privacy Policy and Terms of use
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
Let’s understand this with the help of an example:
Suppose Arun bought a 1 crore term insurance plan with a 30-year policy term. After 10 years, he faced unexpected financial difficulties and needed cash urgently. By surrendering the term insurance policy, Arun ended the policy before its actual maturity date. In this case, Arun would receive a surrender value based on the savings and earnings accumulated over those 10 years. However, there would be a surrender charge deducted from this amount, which can differ based on the specific plan. This charge reduces the total cash they receive but still provides some financial relief in a time of need.
In this article, we’ll discuss the surrender value or surrender benefit of term insurance, its types, and why people decide to surrender their plans.
Surrender value or surrender benefit is the amount an insurance company pays to the policyholder when they decide to terminate their plan before it matures. Here’s how surrender value in term insurance works:
Mid-Tenure Surrender: If a policyholder surrenders their policy during the term, they receive a portion of the premiums allocated towards earnings and savings.
Surrender Charge: A surrender charge is deducted from the surrender value, and this amount varies based on the specific insurance plan.
Minimum Duration: Insurers generally will only pay the surrender value if the term insurance policy has been active for a specified number of years, usually between 3 and 5 years, as outlined in the policy terms.
Surrender Charge Regulations: The amount of the surrender charge can differ by policy, but according to IRDAI regulations in India, no surrender charges can be applied if the policyholder surrenders after five years.
Term Plans
IRDAI has provided a set of rules for surrender value in term insurance. Here is a detailed explanation:
Policyholder Rights: Under IRDAI rules, anyone who buy term plan can surrender their insurance policy.
Three-Year Requirement: Policyholders can receive the surrender value payout only after the policy has been active for at least three years.
Surrender Value Calculation: The IRDAI determines the surrender value for the first seven years of the policy.
Surrender Value Percentages:
Years 3 to 7:
From the third year onwards, the surrender value can be up to 30% of the total premiums paid.
This value may increase to as much as 50% of the premiums paid between the fourth and seventh years.
Post-Seven Year Policy: After seven years, the insurance company independently decides the surrender value based on the policy terms.
Maturity Proximity: Generally, the closer the policyholder is to the policy's maturity date at the time of surrender, the higher the payout and benefits they will receive.
There are two types of surrender value in term or life insurance:
Guaranteed Surrender Value (GSV): The GSV is the amount that policyholders can expect to receive after the policy has been in force for at least three years. It is calculated based on the premiums paid, excluding the first year's premium and any additional premiums for riders or bonuses. The GSV is determined by multiplying the total premiums paid by a surrender value factor, a percentage of those premiums. This amount is typically stated in the policy brochure.
Special Surrender Value (SSV): Special Surrender Value (SSV) considers several factors, including the total sum assured, total premiums paid, policy term, and any applicable bonuses. If a policyholder cannot continue paying premiums, the policy may convert into a paid-up policy, which means the sum assured is reduced according to the total premiums paid. When surrendering a paid-up policy, the policyholder receives the SSV, which can be estimated by adding the paid-up value to the surrender value factor. This makes the SSV more variable compared to the GSV, as it is influenced by the specific terms of the policy.
Secure Your Family Future Today
₹1 CRORE
Term Plan Starting @
Get an online discount of upto 10%#
Compare 40+ plans from 15 Insurers
The surrender value in term insurance policies can differ between insurance companies. Generally, it is calculated based on a few key factors:
Policy Term: Longer policy terms typically result in a higher surrender value.
Premium Paid: Higher premiums lead to a higher surrender value.
Policyholder’s Age: Younger policyholders usually receive a higher surrender value when surrendering their policy.
Typically, the surrender value or surrender benefit is a percentage of the total premiums paid, and this percentage varies based on the policy term and the number of premiums paid. It's important to remember that the surrender value is usually lower than the total premiums the policyholder has paid.
People surrender their term insurance or life insurance policies because of the following reasons:
Financial Needs: People may encounter unexpected financial difficulties during their policy terms, such as medical emergencies or loss of employment. In these situations, surrendering a term insurance policy can provide immediate cash through the surrender value, helping to alleviate short-term financial pressure.
Changing Priorities: Life events like marriage, having children, or changing jobs often lead people to reassess their insurance needs. They might find that their current policy no longer aligns with their financial goals or responsibilities, prompting them to surrender it in favour of a more suitable option.
Dissatisfaction with Coverage: Some policyholders may feel that their existing term insurance plan doesn’t provide adequate protection compared to newer policies available in the market. This dissatisfaction can lead them to surrender their current policy in search of better coverage options that fit their needs.
Better Options: Policyholders may discover newer insurance products or investment opportunities that offer better coverage, lower costs, or higher returns. In such cases, surrendering an existing term insurance policy allows them to reallocate their resources toward these more advantageous options.
Before you decide to surrender an active insurance policy, it’s important to think carefully about your options. While reducing your immediate financial burdens may seem like a nice alternative, keeping the policy might be a better choice in the long run. Here are some key factors to consider:
Future Financial Plans and Goals: Consider your long-term financial plans. While surrendering a term insurance policy might provide quick cash, it could also risk your future security. Check the best term insurance plans available to make a wise decision.
Insurance Requirements: Consider whether you still need the coverage the policy provides. Do you have other insurance options?
Surrender Value: Check how much you will receive if you surrender the policy. The surrender value might be lower than expected, so assess if it's worth giving up the benefits.
Alternative Options: Before surrendering, consider other solutions. For example, you might be able to convert your policy to a paid-up status or take a loan against it.
Tax Implications: Be aware of any tax consequences when surrendering your policy. The payout may be taxed, which could affect your finances.
Flexibility of Policy: Consider how flexible your policy is. Some policies allow you to adjust coverage or premiums, which might help you without losing the insurance. Also, if you have added term insurance riders to your plan, all the benefits will be null and void if you surrender your policy.
Health Considerations: Think about your health situation. If you surrender the policy and want to buy a new one later, you might face higher premiums due to changes in your health.
Additionally, seeking guidance from an insurance advisor can be valuable. They can help you understand the implications of surrendering your policy and explore alternative strategies that align with your financial goals.
The surrender value in term insurance lets policyholders cancel their plan if they no longer feel they need coverage. However, once you surrender the policy, you lose all benefits. If the policyholder unfortunately dies after surrendering, the nominee won't receive any payout. It's important to read the policy documents and think carefully before surrendering a life insurance plan.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
Many people wonder about its tax benefits when purchasing a term
Read more
Studying abroad can be a life-changing experience, offering
Read more
The divide between rural and urban lifestyles in Tamil Nadu is
Read more
Sikkim, a state rapidly advancing through industrialisation and
Read more
With 62% of Rajasthan's population dependent on agriculture, the
Read moreInsurance
Calculators
Payment Methods
Secured With
Follow us on
